Audit addresses Apple Valley’s financial issues (March 10, 2018)
APPLE VALLEY — While an annual independent audit recently awarded the town’s financial statements an unmodified, or “clean,” opinion, it also highlighted several areas of concern, including sustained losses in the general fund.
The audit was conducted by Van Lant and Fankhanel LLP, and the firm’s “clean” opinion means the town’s statements for fiscal year 2016-17 were “presented fairly in accordance with generally accepted accounting principles,” according to Brett Van Lant.
He discussed several reports produced by the audit during the Town Council’s Feb. 13 meeting, including one that identified two “material weaknesses,” tied to the general fund.
“The first one is in regards to your expenditures over your budgeted items,” Van Lant said. “We’ve also kind of considered this a compliance finding because … your actual expenditures exceeded your budget document. It wasn’t in compliance there. Also, discussing your deficit spending, the general fund’s expenditures exceeding your revenues. It’s been occurring for several years now.”
The town’s general fund “has suffered substantial recurring losses,” including an approximately $6.4 million decrease in unrestricted fund balance over the last two years, the report shows. The losses left about $1.8 million available as of June 30 of last year.
Van Lant said the unrestricted fund balance represented approximately 7 percent of FY 2016-17 expenditures, which is less than one month of unrestricted reserves.
“The Government Finance Officers Association (GFOA) best practices (is a) minimum of two months operating reserves,” he said.
Cash and investment balances also fell by $6.4 million over the same period. Expenditures exceeded budgeted appropriations by nearly $3 million, according to the report.
The town’s Parks and Recreation and Apple Valley Golf Course funds continue to have a negative impact. Deficit balances of $6.6 million and nearly $1.9 million, respectively, have resulted in cash advances from the general fund of more than $9.9 million.
“If the current trends … continue,” the report reads, “the financial condition of the General Fund could negatively affect the level of services the Town can provide to citizens in the future.”
Van Lant and his team recommended the town consider whether financial policy and budget revisions are necessary to battle against losses.
In response, the town said it will continue to review established policies meant to ensure long-term solvency, according to the report.
“Expenditures resulting in the finding were a result of a change in the Town’s cost allocation plan methodology which was discussed with Town Council,” the response reads, “however, no budget amendment was submitted to Council for consideration to formally approve a budgetary appropriation.”
The town expects to improve budgetary controls by requesting amendments throughout the fiscal year, and Town Manager Doug Robertson said staff is developing the FY 2018-19 budget with the audit’s findings in mind.
“All of the departments have turned in their first preliminary budgets — it’s very draft, of course — and prior to doing that I asked each one of them to come up with 10 percent reduction across the board,” Robertson said. “Not everyone will be able to do that necessarily right away, but that’s where we’re starting at … we will have a balanced budget for FY 18-19.”
Conducted in two parts, the audit first consisted of a review of the town’s cash receipts and disbursements, purchasing and payroll, among other areas of interest, according to Van Lant.
The second part occurred months later and focused on the testing of balances and amounts reported in financial statements, with the goal being to provide “reasonable assurance” that those statements earned a “clean” opinion.
The audit also found a “significant deficiency” in the town’s internal control related to contracts with vendors that lacked specified expiration dates, including a Building and Safety Services agreement from April 1994.
No formal documentation exists to ensure the town is receiving the best service for the best possible price, according to the report.
While most contracts contain termination dates, according to the town’s response, management is planning to establish a formal procedure to ensure all contracts have them in the future.
Source: Matthew Cabe, Daily Press